Imply about counting transfer payments in GDP

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Reference no: EM131076320

Suppose we have an economy of four people. One very rich person makes $100,000 per year, while three (relatively) poor people make $20,000. Suppose the rich person has an MPC of 0.2, and the poor have MPC’s of 0.8. Assess the following statement: If we redistribute $30,000 from the rich person to give equally to the poor, society will be better off because consumption will increase. What does your answer imply about counting transfer payments in GDP?

Reference no: EM131076320

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